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November 05, 2012 at 09:14 AM
As other broker-dealers continue to embrace acquisitions as a growth strategy, leaders of Commonwealth Financial say that the firm would consider such a move, but it has very tough standards.
“We will look at anything,” said CEO Wayne Bloom (left), in an exclusive interview with AdvisorOne on Saturday, during the independent-contractor BD firm’s national conference in San Antonio. “But look at the profile of most firms. Maybe 15% or 20% of the advisors could fit our production requirement, business mix and culture. Why would we take on the other 80%-85% of [those] reps?”
Commonwealth, Bloom explains, is more keenly focused on “finding the advisors we want,” which generally means those with $200,000 and up in yearly fees and commissions. He admits that this represents “slower growth, but this is the right growth% for us.”
As an example of broker-dealer firms growing through acquisition, last Wednesday, First Allied Holdings said it planned to buy the Legend Group from Waddell & Reed (WDR). It would boost the number of reps affiliated with First Allied by about 450 to some 1,500 advisors with $30 billion in assets under administration.
First Allied Securities Chairman Joel Marks says this type of transaction is essential for independent firms of its size. “Margin compression in this business is getting bigger, so you have to grow. It is not an option,” he said in an interview on Nov. 1.
Recruiting Momentum
“We actually can recruit,” said John Rooney (right), managing partner of the firm in San Diego, during the Saturday group interview with Commonwealth’s leaders. “No one is throwing out money in the independent world; only the wirehouses do. You have to compete on service, technology and what makes the broker-dealer effective. There is only a handful on the top tier, and those at that level are doing okay organically. Others are having a harder time.”
Commonwealth executives say the firm has attracted about $36 million in yearly fees & commissions to date with newly recruited advisors, with the average production level being about $405,000. (About 70 of all advisors that joined in the past 12 months attended its Nov. 2-5 national conference in San Antonio.)
As Daniels (left) acknowledges, keeping all advisors happy with its high service level is paramountm and stresses that it’s more important than adding a large number of new advisors. “My standard for growth is this: How does a rep who joined us five to 10 years ago feel about us today? adding ‘Why does this make us attractive to prospects?’” What is more important, he said, “is having a careful, strategic evolution.”